Sun Frontier Real Estate has launched "START-UP FRONTIER TOKYO," a new kind of project in collaboration with multiple venture capital firms and startup support companies. The aspiration to "make Tokyo the world's most startup-friendly city" has driven the initiative to create an environment befitting the growth of startup companies. We spoke with Shuhei Oda, Executive Officer at Sun Frontier Real Estate, who spearheaded the project; Shinichiro Hori, Representative Director and President of Z Venture Capital, the corporate venture capital arm of Z Holdings; and Takeshi Kaneko of East Ventures, one of the largest seed-stage venture capital firms in Japan and Southeast Asia. We discussed the background of the project's launch, the details of the major event "FRONTIER PITCH TOKYO for Startups 2023," the challenges startups face in choosing office spaces, and the future of startups in Japan.
For details on "START-UP FRONTIER TOKYO",click here

— Sun Frontier Real Estate Co., Ltd. jointly operates the shared office for startups, "Hive Shibuya," with Z Venture Capital (hereinafter "ZVC") and East Ventures (hereinafter "EV"), which opened in January 2023. What kind of synergy do you believe arises from the collaboration between a real estate company and venture capital firms (hereinafter "VCs")?

Mr. Oda:From the perspective of the real estate industry, the COVID-19 pandemic has brought about significant changes in working styles and lifestyles. People have adapted to changes in their environment, such as remote work, flexible hours, and side jobs. On the other hand, the properties handled by real estate companies and their surrounding environments have not changed since before the pandemic. In reality, the real estate side also needs to adapt flexibly to environmental changes. In fact, the US is experiencing rising office vacancy rates, and the real estate industry is struggling. If real estate business companies do not change not only the hard aspects of buildings but also the soft aspects such as contracts and laws, offices will no longer be needed. These are the challenges we are currently facing.

The increase in the number of dynamic new companies like startups and the acceleration of their growth will undoubtedly be a tailwind for the real estate industry as well. That is precisely why we believe it is necessary for the real estate side to make an effort and become startup-friendly.

Mr. Kaneko:Startup founders, especially first-time entrepreneurs, often lack knowledge in areas such as office selection, talent acquisition, and marketing. However, with shared offices like Hive Shibuya, founders can exchange information with each other. I believe this promotes the growth of startups.

Mr. Hori:In the first place, there have been very few opportunities for real estate companies to approach VCs until now. Providing affordable, good office spaces is a significant support for startups as they repeatedly raise funds, not just in the seed stage but through Series A, B, and beyond. It is very helpful for startups, who cannot easily downgrade their office quality even when cash flow is tight. I am deeply honored that this unprecedented collaboration between Sun Frontier Real Estate, with its diverse range of rental offices, and VCs has been realized.

— From the perspective of you two VCs, what kind of difficulties and challenges do you observe startup founders facing when choosing an office?

Mr. KanekoWe invest in seed-stage startups, and we feel that the time and mental cost that founders have to allocate to office relocation is far greater than imagined, placing a significant burden on them. Especially for rapidly growing startups, the need for office relocation increases with accelerating employee growth, incurring costs each time. From a VC's standpoint, this is a crucial period of rapid business growth, so frankly, we want founders to minimize the time spent on office issues.

Mr. HoriI was surprised to hear from Mr. Kaneko about the difficulties seed-stage founders face when searching for offices. Some are rejected during the screening process because they are newly established, or it's hard to find offices available for a small number of people. Furthermore, when you add location and size to the criteria, there are fewer reasonably priced offices than one might expect... Therefore, I was reminded once again that set-up offices, like those provided by Sun Frontier Real Estate, are an indispensable support for founders.

— What are the characteristics of the "set-up offices" that Sun Frontier Real Estate offers for startups?

Mr. Oda:These are offices designed to minimize time, resources, and costs to support the business growth of startups. For conventional rental offices, companies sign a lease, then find and hire their own designers, contractors, and purchase office furniture and layout. This process must be completed while paying rent for about two months. Furthermore, upon vacating, it is necessary to restore the space to its original condition over about a month and a half within the lease term, incurring significant costs and effort at both move-in and move-out.

In contrast, Sun Frontier Real Estate's set-up offices are pre-furnished with interiors and office furniture by professionals, allowing immediate occupancy after signing the lease. There is no need for restoration upon vacating. Companies can minimize costs, effort, and time at both move-in and move-out. Since we began offering set-up offices in 2013, they have been supported by many startups, and we now have approximately 1,000 units, holding the No. 1 market share in the industry (※2), for which we are grateful.

Mr. Oda:Startups end up spending a large portion of the funds invested by VCs on office rent and maintenance costs, don't they? For example, if you rent an office with a monthly rent of 500,000 yen, there are additional costs such as security deposits, key money, interior renovation costs, and utility fees. Since the lease term is generally a minimum of two years, the total cost over two years can exceed 20 million yen, which is 40 to 50 times the monthly rent of 500,000 yen.

We don't want busy founders to have unnecessary worries about their offices. That's why we offer set-up offices as the optimal solution, allowing immediate move-in and smooth move-out. If set-up offices become more widespread, we can remove obstacles and pain points in startup growth. Furthermore, we can reduce social and environmental waste from "constructing and then demolishing interiors" with each office move-in and move-out.

By real estate companies becoming startup-friendly, it leads to an increase in the number of companies and accelerated growth. In the long term, this means more tenants for rental offices, which we believe is a significant benefit for the real estate industry as well.

The "Sonomanma Office" website for pre-fitted and set-up offices ishere

— In June 2023, Sun Frontier Real Estate launched the "START-UP FRONTIER TOKYO" project. You are collaborating with multiple venture capital firms and startup support companies such as EV and ZVC. Could you tell us about the background of its launch?

Mr. Oda:We launched "START-UP FRONTIER TOKYO" with the concept of "making Tokyo the world's most startup-friendly city" over the course of a year. We aim to create an environment where startups can grow in Tokyo by going beyond the traditional framework of a real estate company and discussing how real estate companies should be, with input from VCs and startup support companies. We believe that if this leads to a gradual economic upturn and increased optimism about the future, it could indirectly help solve Japan's problems, such as the declining birthrate.

— And as a kickoff event for this project, a pitch contest themed "Japan's Future in 10 Years: What We Want to Realize" will be held in September. The top prize winners will receive one year of free use of a set-up office, is that correct?

Mr. Oda:Yes. We hope they will give their all in their pitches with the aim of winning the prize.

Mr. Hori:While many pitch contests offer cash prizes, I never imagined an office would be the prize (laughs). It's unprecedented, or rather, a very new initiative. Moreover, Sun Frontier Real Estate's offices are likely to have incredibly stylish interiors. With such buzz, it will attract a lot of attention and clearly differentiate itself from other pitch contests.

Mr. Kaneko:One of the reasons I initially wanted to work with Sun Frontier Real Estate was because "the interiors of the set-up offices they handle are cool" (laughs). I have high expectations for the offices that will be awarded as prizes this time.

Mr. Oda:Thank you. You will both be serving as judges. What criteria will you use in your evaluation?

Mr. Kaneko:I plan to evaluate based on "growth potential," which is essential for startups. I hope that this "FRONTIER PITCH TOKYO for Startups 2023" will produce rapidly expanding startups, enhancing the reputation of this project and widely publicizing the wonderful initiative that set-up offices represent. Also, if there are more promising startups that repeatedly relocate their offices, it should lead to increased sales for Sun Frontier Real Estate (laughs), so I hope to repay the favor for their past support.

Mr. Hori:I want the entrepreneurs to passionately present the "future of Japan in 10 years that they want to realize." I am looking forward to surprising ideas and passionate speeches.

After all, this is the first pitch contest, so the organizers' enthusiasm is immense. They are even filming and uploading videos, not just this interview article (laughs). Sun Frontier Real Estate will likely invest more than double the usual resources for PR, so if a company wins, they will probably receive many interview requests for that company and its office. Of course, simply being selected as one of the eight finalists and getting the opportunity to speak is a promotional effect and a valuable opportunity.

For details on "FRONTIER PITCH TOKYO for Startups 2023",click here

— Finally, could you tell us what kind of support you would like to provide for the future of startups in Japan?

Mr. Hori:Through today's discussion, I feel that by not only VCs and real estate companies, but also people from a wider range of industries creating a supportive environment, we can progressively reduce the friction coefficient in startup growth, leading to a world where everyone can focus on service development. Together with industry leaders like Sun Frontier Real Estate and EV, we will share the responsibility and promote the creation of comfortable environments for startups, like Hive Shibuya, conveying the message, "Please start and manage your businesses with peace of mind!"

Mr. Kaneko:We at EV have over 10 years of experience in establishing and operating shared offices. There are many "pitfalls" that entrepreneurs tend to fall into, but by working in shared offices like Hive Shibuya, directly talking with representatives of successful companies, and learning about recruitment and hiring methods right beside them, I believe they can avoid these pitfalls by acquiring real information. We want to continue to provide full support in various aspects, including Hive Shibuya.

Mr. Oda:Our goal at Sun Frontier Real Estate is to "become Japan's No. 1 startup-friendly office partner." As a developer specializing in relatively small offices for 5 to about 50 people, we aim to reduce challenges at each growth stage in office environments from the startup phase (seed/early) to the expansion phase (mid-stage), thereby contributing to further growth. We want to prepare the environment so that entrepreneurs do not fall into the "pitfalls" that Mr. Kaneko just mentioned.

Not only the private sector but also the government has high expectations for startups, and the variety of support methods and subsidies is increasing. As startups increase and momentum grows, real estate companies must also ride this wave and should not be an outdated industry that holds them back. Although real estate companies deal with immobile assets, we must break out of the industry, move, and change. While it is a heavy responsibility, we will continue to create an environment aiming for "making Tokyo the world's most startup-friendly city" to multiply and improve the bright future.

※1 From Keidanren Times, "Past, Present, and Future Prospects of Japan's Startup Ecosystem"
https://www.keidanren.or.jp/journal/times/2023/0706_04.html

※2 June 2023: Survey by Sun Frontier Real Estate Co., Ltd. (※Survey conducted by a third-party research organization)